Business owners meeting with financial professional.
Last year may have been a slow year for mergers and acquisitions (M&A), but the downturn came on the heels of the biggest year on record. According to Statista, there were 50,000 deals in 2022. Even better? The 2024 frenzy is just getting started.
If you dream of handing over the reins through an acquisition and walking away with a big win, it’s time to start planning. Exiting your business on your terms takes preparation.
From early planning to sound financial records, market research to team dynamics, let’s explore the to-do's that will build a strong narrative, showcase your company's value, and get your ducks in a row—years before you even hit the market.
1. Decide If You Are Personally Ready To Sell
The critical first step in selling is vetting your own readiness. Are you prepared to part with a business entity that you’ve likely built from the ground up?
This goes beyond emotional attachment. Coachvox AI founder Jodie Cook points out that readiness could be due to a lack of motivation. “Perhaps you’re bored and ready for a new challenge,” she says, as one of the signs that it may be time to sell your business. “You want to solve bigger problems and let go of ones you have seen before.”
If you’re considering selling, start with yourself. Are you in a good place to rest on your laurels and move on to something else?
2. Prepare Your Team Well In Advance
The same concept of gauging personal readiness applies to your team. Selling a company can be a dramatic event for everyone involved.
The obvious threat here is termination. Harvard Business Review reports that the average M&A within the same industry leads to 30% employee redundancy.
Even if your employees have a fair chance of surviving the transition, are they prepared for the flood of changing processes and expectations that new employers bring? If you're considering selling, make sure to invest in preparing your team beforehand. It’s not just important for the survival of your operation. It’s part of being a trusting leader and a good person.
3. Prioritize Clean Books To Support Your Company’s Valuation
Bookkeeping is an easy-to-overlook area of acquisition preparation. You’re not talking about profit margins or investor funding, which makes it easy to downplay its importance.
Nothing could be further from the truth. One look at a sloppy or uncertain set of books could be enough to dissuade a potential buyer. Financial clarity is paramount, and to make matters more complicated, many SMBs don’t have a dedicated Chief Financial Officer on staff. If that’s the case for you, platforms like Hub Analytics can help interpret and audit your company’s bookkeeping to provide insights and shed light on potential errors.
Having five years or more of clean bookkeeping is one of the easiest ways to justify your valuation or asking price. Without this multi-year runway of financial records, any buyer or private equity firm will critique your financials to drive the price down.
Proper data collection and clean analysis—especially in an area as crucial as bookkeeping—can yield insights that don’t just help you direct your brand in the here and now. They also give you a cleaner, smoother, more profitable exit in the future. Ensure you have a system in place early on to maintain and track best-in-class financials.
4. Build And Understand Your Ideal Buyer Profile
Next, consider the buyer landscape. What kind of M&A partner do you want to court?
Dena Jalbert, CEO of Align Business Advisory Services, which specializes in M&A advisory for middle market companies, emphasizes the importance of understanding buyer types. “Strategic buyers are particularly interested in companies with strong growth potential or a unique market position that complements their existing offerings,” she explains.
Identifying the right buyer ensures alignment of interests and a potentially better deal for the seller. It’s worth understanding early in the selling process.
5. Set The Stage Early To Prepare For Your Exit
Once you’ve assessed yourself, your staff, your customers, your market, and your value in the eyes of potential buyers, it’s time to start setting the stage to accelerate a healthy, high-profit acquisition. Michael Portegello points out that many IPOs take 12-18 months.
Portegello is a former executive at a Big Four professional services firm who has helped countless companies achieve successful exits. In a recent LinkedIn post, he wrote, “I have seen IPOs get chaotically accelerated by months to meet favorable market conditions. I have also seen transactions where the window abruptly closed. My advice is to start earlier than the timelines suggest or increase the urgency of preparation during this period if you are already in it.”
Even if an IPO isn’t coming for a while, don’t put off preparation. Assess your financial readiness, maintain strict compliance, and ensure that you address operational and organizational readiness in the lead-up to your IPO window.
6. Maintain Long-Term Momentum
Finally, don’t let your company lose steam because you’re thinking of parting ways. On the contrary, a thriving business with no future won’t appeal to a buyer.
Keep running things with the same vigor and creativity that got you this far. Maintaining stability is obviously a priority in the lead-up to a sale, but don’t let that get in the way of planning for future growth, too. Continuing to innovate and expand your market reach can not only make your business more attractive to potential buyers but also ensure its long-term viability, regardless of whether a sale occurs.
Plan Early For A Successful Exit
There are many considerations that business owners should keep in mind when preparing for an M&A. Evaluate everyone impacted by the event. Gauge your landscape and potential buyer fits. Keep clean books. Maintain momentum. If you can do all that, you can set the stage for a successful exit that pays handsomely and sets the stage to turn your next big idea into a thriving business.
